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Netflix Hikes Executive Pay Plan, Stock Falls

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Netflix (NFLX) stock fell more than 1.1% on Monday after the company outlined its 2020 executive pay plan. The plan shows substantial increases in the compensation for the company’s top executives.

The new executive pay plan shows that Netflix CEO Reed Hastings will receive a total compensation of $34.7 million in 2020—up from $31.5 million in 2019. The compensation for Netflix’s chief content officer, Ted Sarandos, will change in exact same way. Netflix plans to give its chief product officer, Greg Peters, total compensation of $18.9 million in 2020. The company paid Peters $16.8 million in 2019.

For all of these Netflix executives, the compensation plan includes salary and stock options. For Hastings, 98% of his 2020 compensation is in stock options.

Netflix’s executive pay hike comes after several important developments at the company. We’ll discuss three main developments.

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Netflix stock and revenues have soared 

Netflix stock has gained more than 4,000% in the past decade. As a result, Netflix is the best-performing stock in the S&P 500 during that period, according to CNBC. However, Netflix stock isn’t the only success in the past decade. The company has also delivered significant revenue growth during that period. Netflix’s annual revenues in 2009 were $1.7 billion. Wall Street analysts expect Netflix to report revenues of $20.1 billion for 2019, which would represent 1,100% growth over a decade.

Netflix boosts executive pay 

Netflix’s executive pay hikes come when the company’s grip on the subscription video streaming market faces a serious challenge. Walt Disney (DIS) and Apple launched their Disney+ and Apple TV+ video services, respectively, last month. Both services plan to take market share from Netflix. Disney and Apple have priced their video services competitively to capitalize on Netflix’s pricing problem. Disney has gone all-out to market its Disney+ service against Netflix. As a result, Netflix stock fell on the day Disney+ and Apple TV+ debuted.

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Netflix has downplayed the competitive threat. The company argued that the video streaming market is huge. Netflix’s content strategy will help it stand out. Therefore, the company’s decision to hike the 2020 compensation for its executives might be a move to motivate the executive staff to stay with the company. Executives will need to work hard as Netflix battles the surging streaming war.

Cash requirements rise amid swelling debt load

Netflix stock fell following the executive compensation increase, which seems to reflect investors’ concern about the company’s finances. The executive pay boost comes when Netflix’s cash requirements and debt are rising. The company will spend $17.8 billion on content next year—up from $15 billion this year. The company has returned to borrowing to make up for its cash shortage. Recently, Netflix sought to raise $2.0 billion through bond sales, which could see its debt top $14 billion.

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